We believe dividend payout will revert to mean from FY19. IEX is our preferred pick in Power — our thesis is based on strong moats such as network effect and technology edge, coupled with nascent stage of the market which would drive sustainable volume CAGR of 15%+.We met with senior officials at CERC and learnt that the regulator prefers to leave transaction charges to market forces — a big positive for IEX, as revision of transaction charges is a key overhang. Maintain BUY.

ST volume grew 5.5% during 11MFY18. Within ST, share of bilateral dropped from 18% to 13%, while share of traders was constant at 29%. Share of exchanges increased from 34% to 37% primarily led by structural drivers such as: (a) improvement in transmission network and (b) strong growth in renewable. Demand continued to be strong (20% rise in buy bids), but supply constraints impacted volumes. The supply was impacted due to shortage of domestic coal availability and sharp rise in prices of imported coal. Supply constraints seem to be easing, as reflected in (a) coal production up 9% in March 2018, (b) imported coal prices down 22% in past 1.5 months and (c) forecast of normal monsoon implying wind and hydro will be higher year-on-year.

IEX’s transaction revenue grew 19% year-on-year in FY18 in tandem with volume growth in the electricity segment; however, admission and annual fee declined 6% year-on-year due to change in mix, as share of open access customers declined from 60% in FY17 to 33% in FY18. This was offset by higher share of discoms. Overall, IEX’s revenue grew 16% year-on-year.

Volumes on IEX grew 26% year-on-year in FY18 led by (a) 14% year-on-year increase in traditional day-ahead and term-ahead products, (b) 102% volume rise of RECs and (c) addition of new product such as ESCerts to its trading platform.

IEX maintained its dominant market share of 97% of the traded volumes in the electricity market.